Aspen buys a business from Glaxo

This morning we had an interesting announcement from our recommended healthcare stock Aspen. The company has reached another agreement with GlaxoSmithKline to acquire 25 established pharma products which are distributed throughout Australia. It is a fairly big acquisition by South African standards, GBP 172 million or R2.2bn which will be raised through new offshore debt facilities. According to the latest financial statements the company is sitting on about R 3bn in cash with borrowings of about R6bn. Remember the Sigma acquisition was worth R5.8bn.


This looks very similar to the GSK agreement they have here in South Africa. Except that was done when Aspen were smaller and had to swap equity for the products. Now they can raise capital at much better rates and without diluting shareholders. It is a good relationship, GSK are looking to become more focused and Aspen can ride on their already established brands. It has worked very well here so you would expect, with Aspens experience, that they should be able to roll it out successfully in Australia. Here is the rationale from the announcement.


"The Products acquired through the Transaction represent an excellent fit with Aspen's existing portfolio and the added revenue will strengthen Aspen's position as one of the leading pharma companies in Australia. Whilst the Products received little promotional focus from GSK, Aspen is confident that it will be able to leverage its proven ability to reinvigorate older brands and the products' considerable brand equity in order to enhance the value of the portfolio."

You see, these brands which includes analgesic, antibiotics and anti-virals seem somewhat neglected by GSK and Aspen plan to reinvigorate the portfolio. It also enhances Aspens global reach which has been its strength over the last year following a weak South African market. We expect the SA sector to improve along with another strong performance from the international businesses in the next reporting season. This should result in a strong growth in earnings yet again. We are not the only ones, the share price is up 40% this year. We continue to add to the stock especially on the back of this announcement as the company seeks further growth off of our shores.